British American Tobacco - Speech by Richard Burrows, Chairman at the British American Tobacco p.l.c. 2014 Annual General Meeting

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Speech by Richard Burrows, Chairman at the British American Tobacco p.l.c. 2014 Annual General Meeting

30 April 2014

Good morning ladies and gentlemen and welcome to your AGM.

All your directors, except Karen de Segundo, are here today and I hope many of you have had the opportunity of meeting them before the meeting in the Undercroft.

2013 was a good year for British American Tobacco. Record results were achieved and, in addition, long term strategy was refined which is captured by our headline – delivering today, investing in tomorrow. That is, achieving good results now whilst investing to secure the long term future of the business.

Our long term vision for British American Tobacco is for it to become the world’s best at satisfying consumer moments in tobacco and beyond. So, satisfying consumers with tobacco and nicotine products in markets around the world is our central aim.

Our belief is that by executing our plan well, we can grow revenue and profit and maintain our progressive dividend pay out to shareholders.

As we did in 2013 when, at constant currency rates, revenue grew 4%, and operating profit grew by 7%. Earnings per share grew 6%. Dividends, assuming you approve the final dividend today, will have grown by 6% also. And to put this in the context of a very competitive marketplace, we also grew market share.

And that performance is continuing this year. Our first quarter IMS statement posted this morning said:

"British American Tobacco delivered an improved volume performance, down just 1% in the first three months of the year, aided by the continued strong growth of the Global Drive Brands. The Group built on the good share performance seen last year, with strong share growth across the key markets in the first quarter of 2014.

Although foreign exchange remains an issue for reported results, it is a good start to the year. We remain confident of delivering consistent growth in earnings in constant currency terms, which we will recognise with an increase in the dividend. ”

However, challenges do lie ahead. Fragile economic conditions persist around the world and regulatory risks remain.

Our Industry is a highly regulated one and rightly so. British American Tobacco will continue to support regulation of tobacco products that is based on robust evidence and supported through research.

Where we disagree with measures being proposed, we will always try to offer practical alternatives for delivering regulatory aims and public health objectives.

We believe regulation on packaging has gone too far in recent moves to bring in plain packaging. Along with failing to respect our minimum guaranteed rights on trade mark protection, we have seen no credible evidence that plain packaging will stop children from taking up smoking or encourage current smokers to quit.

Australia introduced plain packaging one year ago and since then the amount of tobacco shipped equated to an increase of 59 million cigarettes, the first increase in Australian tobacco volumes in over five years. And an industry commissioned KPMG report, published earlier this month found that the illegal market is now at its highest ever point and is equal to 13.9 per cent of total consumption, costing the Australian Government and taxpayers some $1.1 billion a year.

These facts clearly place a question mark over the policy.

And it is not just the tobacco industry that is concerned about plain packaging.

Five sovereign states are also challenging Australia’s decision to introduce plain packaging, via the World Trade Organisation. Those countries are challenging it because they believe the legislation is a barrier to trade and restricts intellectual property.

And as an area where we have common goals, we are happy to support countries willing to challenge these measures in any way we can – something that is standard practice in World Trade Organisation disputes.

Along with championing sound regulation, sustainable tobacco farming is another critically important issue for us.

Securing our future supply of tobacco is vital to our business. We can help to achieve this by partnering with farmers to enable them to be more productive whilst controlling the use of pesticides, fertilisers and water.

We don’t own tobacco farms, or directly employ farmers. We work as partners with over 100,000 smallholder farmers worldwide, providing a yearly purchase guarantee for a certain amount of tobacco and access to farming methods and technologies that might otherwise be out of reach.

Our Social Responsibility in Tobacco Production programme clearly sets out the standards we expect from our leaf suppliers, with good agricultural practices, occupational health and other social issues such as eliminating child labour all covered within it.

Farmers choose to grow tobacco because it’s hardy, does well in poorer soils, and can cope with volatile weather, as well as providing them good returns on their investment.

But we don’t want them to just grow tobacco.

We have built up a skilled network of local field technicians who demonstrate how to enjoy good tobacco yields from small plots, while growing other crops such as cereals, fruit and vegetables.

This responsible and sustainable agriculture helps secure the future success of the business as well as increasing the prosperity of many farmers.

Turning to a point raised at last year’s AGM, shareholders will be aware of the efforts made by the Farm Labor Organizing Committee to draw our attention to their concerns about the conditions in which migrant farm labourers work in the tobacco farms of North Carolina.

British American Tobacco has no direct operations in that part of the World, but we do source a small part of our annual tobacco crop through our associate company R.J. Reynolds Tobacco.

Responding to the Committee’s requests, and contact from the IUF and UNITE unions, as well as the Trades Union Congress and Oxfam, we encouraged Reynolds to establish multi-stakeholder discussions on the issue and, as a result, the Farm Labour Practices Group was established.

Reynolds agreed to participate in the Farm Labour Practices Group at its AGM in 2012. So far, there have been five meetings of the group, with the last taking place on the 10th of April 2014.

Meetings take place approximately once every six months, with the Farm Labor Organizing Committee represented at all discussions.

Since the establishment of the Farm Labour Practices Group, dedicated working groups have been established and are examining the key issues of grievance mechanisms and farm labour contractors.

Reynolds has partnered with the North Carolina Department of Labor to launch a series of training programs for workers, covering their rights and farm health and safety. These programmes are also being made available to those who do not work on farms contracted with Reynolds.

Following a presentation by Human Rights Watch at the Farm Labour Practices Group meeting on the 10th of April, a working group has been established to address child labour issues - something that Human Rights Watch says has “the possibility to make significant positive impacts”.

And Reynolds has financially assisted in the refurbishment of the homes of some 600 farm workers.

Shareholders will know that we, British American Tobacco, although the largest shareholder in Reynolds, must allow Reynolds’ own board to make all policy decisions in relation to its own affairs.

Nevertheless, we feel that we have followed our own code of conduct fully and properly by exercising our auditing process on the tobacco supply chain in North Carolina fully and to our satisfaction.

Finally, as we close one year and look forward to another, let me on your behalf say thanks to the people of British American Tobacco around the world, all 57,000 of them, who have worked hard to produce these results.

John Daly, our Chief Operating Officer, retired after nineteen years with the company, and Anthony Ruys, who has served on the Board for the past eight years after a great career in industry, stands down today in line with our normal rotation of directors.

We welcomed Savio Kwan to the board last January. Savio brings a deep experience of international businesses and a different perspective to our deliberations as a board.

And lastly, in your presence, let me thank our Chief Executive, Nicandro Durante, who has led this company very effectively. Nicandro and his management team have infused a renewed spirit of responsibility and dynamism into this company which augurs well for the future.